A Study of Success and Failure in ERP Implementation - NADIA

International Journal of u- and e- Service, Science and Technology

Vol.8, No. 7 (2015), pp.183-194

http://dx.doi.org/10.14257/ijunesst.2015.8.7.18

ISSN: 2005-4246 IJUNESST

Copyright ⓒ 2015 SERSC

A Study of Success and Failure in ERP Implementation: The Case

of the Agricultural Products Processing Center

Jin Hyeung Kim1, Jung Rock Do

2 and Young Chan Choe

3

1First author, Seoul National University Agricultural Economics and Rural

Development, 200-8201, Gwanak-ro 1, Gwanak-gu, Seoul, 151-921 2Second author, Seoul National University Agricultural Economics and Rural

Development, 200-8201, Gwanak-ro 1, Gwanak-gu, Seoul, 151-921 3Corresponding author, Seoul National University Agricultural Economics and

Rural Development, 200-8201, Gwanak-ro 1, Gwanak-gu, Seoul, 151-921 [email protected],

[email protected],

[email protected]

Abstract

As the number of large-scaled Agricultural Products Processing Center (APC)

increases, the introduction of the ERP system has been actively promoted in agriculture.

Although there are effort to apply the ERP system in agriculture, successful cases of APC

are rare because of the limitation of ERP system and lack of user’s awareness. The

purpose of the study is to derive success factors of ERP implementation by comparing two

cases of APC which adopted ERP system. This study used 11 Critical Success Factor

(CSF) to analyze whether two APCs had implemented these factors and to find the

importance of CSF before and after ERP adoption. The implications of this study are as

follow. The results of this study can minimize trial and error of APC that uses ERP system

by sharing success factors. In addition, the government can use these factors as APC

target selection index for ERP government business.

Keywords: ERP (Enterprise Resources Planning), APC (Agricultural Products

Processing Center), CSF (Critical Success Factor), Information System

1. Introduction

The growth of large retail stores has created interest in government support to

derive economies of scale in processed agricultural products. Specifically, the

Agricultural Products Processing Center (APC) was established as a free trade

agreement (FTA) funded business. Some organizations have emerged with more

than 20 billion won. In general, operations, inventory and supply chain management

have been applied at the APC. Thus, the government and private sector have been

promoting the implementation of Enterprise Resources Planning (ERP) in order to

enhance the operational efficiency of large-sized businesses. The ERP system

manages production, logistics, finance, accounting, sales, purchasing and inventory

in an integrated process. The ERP helps in the decision-making of new information

by sharing information. In a narrow sense, the ERP System also denotes its own

business software package [23, 24].

The purpose of ERP adoption is to construct integrated information systems and to

enhance business processes. ERP adoption can simplify and standardize work to reduce

stockpiling expenses, reduce payment terms, enhance information sharing and increase

sales [4]. In addition, ERP can strengthen a company's competitiveness by enhancing

consumer response systems, supplying high value information, and constructing global

management systems.


Vol.8, No. 7 (2015)

184 Copyright ⓒ 2015 SERSC

Figure 1. The Purpose of ERP Implementation

ERP systems are applied to various management activities. For the effective operation

of an ERP system, it is necessary to consider specific factors in each field. In the case of

agriculture, the production, distribution and sales processes are different from processes

with the same names in general enterprises.

Figure 2. Process Structure of ERP

There have been several studies conducted to find ERP’s construction schemes,

management efficiency, success factors, and successful cases [1] [9]. However, in

the agricultural field, most studies have focused on the expected effects of ERP

adoption [5] and the cases of small-scaled agricultural businesses, such as the

‘Pureundul’ Agricultural Cooperative Association, and the Agricultural Corporation,

‘Rosepia’. However, few studies have been conducted to find the success factors of

ERP adoption at the APC, which has the biggest ERP system in the agricultural

field.

The objectives of this study are to examine the literature on common ERP and

specialized ERP systems for agriculture. We analyze the success and failure factors

of two actual APC case studies in two regions. We investigate the background and

status of ERP in agriculture. Through the two different cases and the effects of

agricultural marketing, this study seeks to provide implications for agricultural

product processing in the future.

2. Background of ERP adoption and Literature Review

In the early 1970s, Material Requirements Planning (MRP) was used for efficient

production management. MRP minimizes the production of stock parts and performs

a function for managing and supplying materials as per order requests at a suitable

time and place. To do this, product component information, standard process chart,

standard production scheme and production records are needed. MRP has problems

as it dismisses the limitations of the demand for manufacturing resources and does


Vol.8, No. 7 (2015)

Copyright ⓒ 2015 SERSC 185

not reflect changes in real time. In the 1980s, MRP II was developed to effectively

manage all resources and materials for the purpose of cost reduction in response to

the development of computers [24]. MRP II was developed as an intelligent

production management tool by adopting production activity analyzing tools, such

as scheduling algorithms and simulation. In the 1990s, with the growth of

information and communications technology (ICT), ERP was added as a function

that was not provided by MRP II. It was recognized that it is important to consider

both top-down supply systems and associated departments during decision-making

processes. ERP includes not only production and production management, but also

business management support and other areas of management, such as design,

finance, accounting, sales and human resources.

Figure 3. Evolution of ERP

Since the late 1990s, Korean companies have been attempting to revamp their

business processes by using PI (Process Innovation) and BPR (Business Process Re -

engineering). During the same time, competitiveness decreased because of changes,

such as higher personnel expenses, shortage of high-quality human resources, and

insufficient social overhead capital, in the business environment. ERP emerged as

an alternative following an interest in the adoption of new information systems and

innovations in production strategy. Computational costs were reduced by

constructing a system and ERP was needed in the enterprise production process.

Federated ERP systems utilizing the evolution of the ERP and IT technology is in

progress. There is also a business model that introduce the mobile and web-based

ERP system [2, 19]. ERP was adopted in production and operation processes in

various industries, each of which showed particular success and failure factors.

3. Effect of the ERP System in Agriculture

3.1. The Development of the ERP System in Agriculture

In 2002, Saenong and Kointech, as distributors of organic produce, were the first

ERP adopters in South Korea (henceforth referred to as Korea). The purpose of ERP

was to improve competitiveness through the efficiency of management. However,

this purpose did not succeed because of the constraints of ERP technology and the

lack of understanding on the part of the developers of agricultural products. Since

2007, the Korean government has recognized the need for an ERP system in

agriculture. Thus, the Korean government implemented a policy for introducing the

ERP system to one hundred agricultural firms.


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ERP adoption businesses have changed from an individual building type system

to a single integrated construction method. The developmental stages of the ERP

system in agriculture are as follows.

Figure 4. The Development Stages of the ERP System in Agriculture

In the first stage, the ERP system was constructed for 100% optimization for

individual agricultural firms. However, the ERP system had high initial

construction, maintenance and repair costs.

In the second stage of ERP adoption in agriculture, the unified version of ERP

was adopted by agricultural firms. However, the adoption of the second generation

ERP was minimal because the ERP system did not reflect the requirements of

individual agricultural firms and continuous upgrades of the ERP system were not

made.

In the third stage of ERP adoption in agriculture, ERP was a system that was

rented. The ERP solutions services had become so large and preferred to target

general companies. However, some of the agricultural firms had used the rental type

of ERP solutions, which did not reflect the distribution characteristics of

agricultural products. Thus, ERP solutions only operated for some functions or

areas, such as accounting and tax management.

In the fourth stage of ERP adoption in agriculture, the ERP system had been

developed as a production and distribution system with an integrated standard

system and expansion module. The ERP system is based on a process that considers

specific agricultural functions should be conducted. The ERP system also enhances

flexibility and scalability in modularization, which reflects the business practices

and characteristics of an agricultural firm.

Stage #1 100% optimization for

Individual agricultural firms High initial construction cost

High maintenance & Repair cost

Characteristics Causes of Failure

Stage #2 The unified ERP version to all

agricultural firms

Did not reflect the requirements of

individual agricultural firms upgrade of

ERP system was not performed

Stage #3 Rental Version

(General company ERP version)

Did not reflect the distribution

Characteristics of agricultural

products

Stage #4 Customized expansion ERP

(Integrated standard system & Expansion module)


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3.2. Effect of the ERP System in Agriculture

Figure 5. ERP System Flow Chart in APC

Agricultural products are characterized by the distribution process. A precise

harvest yield is difficult to predict. Also, the inventory of agricultural products is

difficult to manage because of the limitations in standardization. Based on the

experience of farmers, the precise amount for a planting plan is difficult to

calculate. Therefore, the introduction of an effective ERP system that clearly

understands the situation in agriculture is necessary.

The effect of ERP system implementation is important. First, the ERP system

enables the standardization of optimized business processes in the APC

environment. Second, the ERP system can improve the accuracy of information, and

centralize it in real time. Although individual information before ERP development

has to be managed, the ERP system enables mutual information sharing by

managing a central server after the ERP development. Therefore, the ERP system

enables rapid decision-making by acquiring accurate data in real time. Third, the

accuracy of inventory management is possible with ERP. Since agricultural products

have perishable characteristics, ERP is an important part of cost savings for the

accurate accounting of stored produce. Fourth, in the adoption of the ERP system,

operational efficiency and transparency in conjunction with automated main

equipment, such as a non-destructive sugar content sorting machine for example,

can be greatly improved. If sorting information for a sophisticated selector and

information cooperation is transmitted and received in real-time at a central server,

a variety of inventory management techniques becomes possible to allow

automatically configuring different specifications. Fifth, APC operational efficiency

can be greatly improved. Lead time, which is the time from order to shipment, can

be reduced by a real-time information sharing system. Also, since the system can

provide the exact quality of the agricultural product using the “calculation”

application, the effect can prevent conflicts associated with the calculation [22].

3.2.1. Case # 1: Agricultural Products Processing Center A:

‘APC A’ is a facility that processes apples. The ERP system was introduced in 2009 to

enhance operational efficiency, which is an important success factor that minimizes the

load on field work when the ERP system is introduced step-by-step. After step 1


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(purchasing, production, storage and calculation) was introduced, step 2 (sales and

delivery) of the ERP system was introduced in three steps (material receipts, payments

and inventory). To minimize trial and error, employees had to accustom themselves to the

system.

It was possible to implement an optimized ERP system using “the sustained

maintenance and optimization” parameters, which is a key element in the success of the

ERP system. This particular CEO at ‘APC A’ had a high understanding of and enthusiasm

for ERP. The on-site person in charge of the utilization of the information system also

played an important role.

Figure 6. ERP Practical Program

3.2.2. Case # 2: Agricultural Products Processing Center B:

‘APC B’ is the biggest apple product processing center and accounted for 8%

production area and 10% production amounts at the end of 2014. This center had

introduced the ERP system in 2008. ‘APC B’ was also controlled by an agricultural

cooperatives consignment management system, which was applied to all processes from

farmers support and purchase until shipment. It was focused on being an economic

integration system rather than a management support system.

Figure 7. APC Institute Composition


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4. Critical Success Factors for the implementation of ERP

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4.1. Literature Review

As ERP systems became popular, the research in related fields has consequently

expanded. Most studies are focused on the success factors for ERP implementation

[19, 12, 23], on ERP case studies [15], and empirical studies of ERP [3]. Most

studies on success factors have concentrated on external environmental factors

rather than system factors. Some research has investigated the success factors that

were present through the IS Success Model and Technology Acceptance Model

(TAM). Such research focused on the technology accommodation factors according

to the implementation of the information system [8, 13, 15, 17].

In this study, we want to analyze the success factors from the management

perspective rather than the validity of the ERP system application. As a result of the

variables that affect the success of ERP, we selected Somers and Nelson’s

comprehensive list of 22 CSFs for project/system implementation. This lists

contains comprehensive indicators composed of IT implementation, business

process re-engineering, project implementations and descriptions, and case studies

of ERP implementation [26].

4.2. Critical Success Factors

The objective of this study are to investigate two Agricultural Products

Processing Centers (APC) in Korea. One is an APC that uses an ERP system

continuously, and another that does not use an ERP system after five years of

adoption. A survey method was carried out by in-depth interviews and

questionnaires with the Project Managers (PM) of the software vendor who had built

the ERP system for each APC. Survey items were set on the basis of the indicator

that was utilized in previous studies of success factors of general corporate ERP

implementation. In addition, in view of the characteristics of Korean agriculture and

APC, several new indicators have been added. The Critical Success Factors (CSF)

are eleven. We investigated whether the two APCs had implemented these factors,

and what their importance before and after ERP adoption was. The eleven critical

success factors and their definitions are shown in Table 1.

Table 1. Critical Success Factors (CSF) and their Definitions

Critical Success

Factors Definition Reference

Top management support

The degree of top manager support before and

after ERP implementation in APC

Somers and

Nelson(2001)

Clear goals and

objectives

Whether APC has set the goal and what level of

ERP adoption

Somers and

Nelson(2001)

Practical hands-on

use by employees The degree of hands-on use by employees

before and after ERP implementation in APC New Indicator

User training and

education Training about ERP system use

Somers and

Nelson(2001)

Training on new business processes

Education according to the new business

processes in ERP implementation

Somers and

Nelson(2001)


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Project team

competence

Ability of ERP department or computing

department

Somers and

Nelson(2001)

Farmer education Education for the farmers participating in the

APC business New Indicator

Vendor/customer

partnerships

The level of cooperation between vendors and

users before and after ERP adoption

Somers and

Nelson(2001)

Ongoing vendor

support Ongoing post-management of software vendor

Somers and

Nelson(2001)

Operational

management of

hardware

Operating management entity of hardware

(servers, etc.) New Indicator

Business process re-

engineering

Enterprise business process redesign for

accomplishments Somers and

Nelson(2001)

Each factor was classified into three groups by level of importance. We requested

that the Project Managers (PM) respond ‘Neutral’ if an individual APC had not

considered a factor important at the time of ERP implementation. The other two

levels were ‘Somewhat important’ and ‘Extremely important’.

4.2.1. Top Management Support: The center manager has the decision-making authority

for most of the work in the APC. Therefore, the support of the top manager can be seen as

an important factor influencing the success or failure of ERP adoption in APC.

4.2.2. Clear Goals and Objectives: Setting clear objectives in introducing the new

system will improve the likelihood of success. The ERP adoption of the APC was usually

carried out with political support in Korea. So, the users can be passive when adopting the

new system. This would require that the users can reduce the likelihood of failure to

accommodate the system actively by setting a clear goal for the ERP implementation.

4.2.3. Practical Hands-On Use by Employees: It is a very important indicator if the

administer has the willingness to use the ERP. The APC has no more than 10 managers

and is not divided into departments. Thus, managers can see the necessity of ERP

operation.

4.2.4. User Training and Education: Education and training are very important for the

managers using am ERP system. As the ERP system is adapted to the APC and manages

the whole operation various processes, such as warehousing, screening, storage,

commercialization and settlement, managers should understand the whole process pf

commercialization and the need to increase the utilization through education.

4.2.5. Education on New Business Processes: It is possible to modify business processes

by ERP implementation. So, APC managers need education on newly modified work. The

quality of education is a significant factor in the successful implementation of ERP.

4.2.6. Project Team Competence: Many general companies have a team of personnel to

operate the system for dedicated computing. However, generally, APC mostly places the

human resources in specific positions. So, there appears to be little difference depending

on the APC service career and computing needs.

4.2.7. Farmer Education: After the farmers complete their sales for a year, they can

receive the results of the settlement. The education with ERP settlement results compared

with existing program results can be an important indicator for sustainable utilization by


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farmers. Continuously implementing the ERP promotion through education can increase

the trust with APC and the settlement results.

4.2.8. Vendor/Customer Partnerships: The partnerships between software vendors and

APC managers is a very significant factors for implementation of operations. Continuous

feedback from the users for ERP adoption can develop into a more appropriate system.

4.2.9. Ongoing Vendor Support: ERP systems are constantly evolving. Therefore, it is

important to consistently upgrade the system. Also, there is variation in the handling of

products and in operations. Continuous support by the software vendor can have a

positive effect for the successful implementation of ERP.

4.2.10. Operational Management of Hardware: If the ERP system is applied to the

APC, server management is very important. If software and hardware managers are

separated, the sustainability of the implementation may be reduced, so it is an important

point for ERP success whether the software vendors manage their hardware.

4.2.11. Business Process Re-Engineering: Business process re-engineering means

basically rethinking enterprise work process and fundamentally redesigning a new

business model from the essential parts, such as costs, quality, services and velocity. A

new business model and re-engineering are essential factors in ERP development [20].

4.3. Results

4.3.1. Case of ERP use: APC A: The results of the ‘APC A’ case study demonstrate that

8 out of 11 CSF were present. Pre-implementation had 2 ‘Extremely important’, 4

‘somewhat important’, and 5 ‘Neutral’ CSFs. Post-implementation had 4 ‘Extremely

important’, 6 ‘Somewhat important’, and 1 ‘Neutral’ CSFs.

Most of the ERP adoption success case studies had put emphasis on the period after the

adoption phase than before the adoption phase.

Among the CSFs, ‘User training and education’ and ‘Project team competence’ had

‘extremely important’ for both pre- and post-implementation, indicating that these were

the most important indicators. ‘Practical hands-on use by employees’ and ‘Ongoing

vendor support’ were found to be the next important factors.

The results indicate that user’s competency and continuous post management are

ERP’s important factors.

Table 2. The Results of APC A

Critical Success Factors APC A

Implementation Pre-Implementation Post- Implementation

Top management support O Somewhat important Somewhat important

Clear goals and objectives △ Somewhat important Somewhat important

Practical hands-on use by

employees O Somewhat important Extremely important

User training and education O Extremely important Extremely important

Education on new business

processes O Neutral Somewhat important

Project team competence △ Extremely important Extremely important


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Farmer education O Neutral Somewhat important

Vendor/customer

partnerships O Somewhat important Somewhat important

Ongoing vendor support O Neutral Extremely important

Operational management of

hardware O Neutral Somewhat important

Business process

re-engineering X Neutral Neutral

4.3.2. Case without ERP use: APC B: The results of the APC B case study demonstrate

that 4 out of 11 CSFs were present. Pre-implementation had no ‘Extremely important’, 6

‘somewhat important’ and 5 ‘Neutral’, and post-implementation had 1 ‘Extremely

important’, 5 ‘Somewhat important’, and 5 ‘Neutral’. Top management support was

found to be an important factor. Rather than there being a specific indicator, ‘somewhat

important’ was prevalent in overall indicators. Compared to APC A, APC B underscored

on ‘Ongoing vendor support’ and ‘Practical hands-on use by employees’.

The results indicate that ‘Top management support’ is the most important indicator in a

general company [15]. In the Korean agricultural sector, actual ERP user’s capability,

level, and willingness are important factors for success in ERP implementation.

Table 3. The Results of APC B

Critical Success Factors APC B

Implementation Pre-Implementation Post-Implementation

Top management support O Somewhat important Extremely important

Clear goals and objectives △ Somewhat important Somewhat important

Practical hands-on use by

employees △ Neutral Neutral

User training and education O Somewhat important Somewhat important

Education on new business

processes O Somewhat important Somewhat important

Project team competence △ Neutral Neutral

Farmer education O Neutral Neutral

Vendor/customer

partnerships △ Somewhat important Somewhat important

Ongoing vendor support △ Somewhat important Somewhat important

Operational management of

hardware △ Neutral Neutral

Business process re-

engineering X Neutral Neutral

5. Conclusions

In this study, we summarized the success factors of the ERP system used in agriculture

and two case studies. By using two case studies, we are able to confirm what factors make

successful implementation of ERP in APC.


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In conclusion, although ‘Top management support’ and ‘Clear goals and objectives’

are important factors to ERP system in general firms, the Critical Success Factors (CSFs)

of ERP implementation in APC are user’s competency and users’ practical hands-on use.

In addition, ERP consulting is essential before introducing the system. Through prior

consulting, business process needs to be schematized. In addition, interest in the

utilization of ERP system from CEO (Chief Executive Officer) and business managers

needs to be raised. Then, considering the organization’s capability and characteristic,

decision needs to be made whether to adopt ERP system at once or stage by stage. After

introducing the ERP system, ongoing maintenance for optimizing the operating system

occurred at the APC. In the long term, we must enhance the introduction of the ERP

system through ERP systems development manuals and APP, DBMS, and hardware

management.

There are two practical implications of this study. The results of this study can

minimize trial and error to APC that uses ERP system by sharing success factors. In

addition, the government can use these factors as APC target selection index for ERP

government business.

Acknowledgements

This research was supported by the MSIP (Ministry of Science, ICT and Future

Planning), Korea, under the C-ITRC (Convergence Information Technology Research

Center) (IITP-2015-H8601-15-1007) supervised by the IITP (Institute for Information

&communications Technology Promotion).

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Authors

Jin Hyeung Kim, He received the BS in the department of

Economics & International Area studies from Handong Global

University in 2014. He is currently a master course student in the

Graduate school of Agricultural Economics and Rural

Development, Seoul National University. His current research

interests include agricultural management information systems,

e-business in the agriculture, and big data analysis.

Jung Rock Do, He received the BS in the department of

Agriculture & Natural Resources from Michigan State University

in 2006. Currently, he is a master course student in the Graduate

school of Agricultural Economics and Rural Development, Seoul

National University. His research interests include agricultural

information systems, agricultural products distribution, supply

chain management.

Young-Chan Choe, He received the MS and Ph.D in Department

of Agricultural Economics from Michigan State University in 1989

and 1991, respectively. He is currently a Professor in Seoul National

University. His current research interests include agricultural

information systems, e-business in the food and agricultural sector,

and big data analysis.

A Study of Success and Failure in ERP Implementation - NADIA

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